KRBL- The King of Basmati rice

(Hashims) #246

I too concur with your views also apart from superior quality over the period of time the person who cooks will build up confidence and familiarity, convenience with certain type of grains each brand produces.
My family uses India gate classic for many years, though they were lot of other options equally good like Daawat, but some stickiness with India gate classic basmati rice still prevails, for which customer may ready to pay some premium price as along as quality stay intact.

I have invested in KRBL since 2013, got out in 2015 with colorful returns, when they were planning to expand into low profit energy business. Initial reason to invest into KRBL was my own reason to stick to consistent quality under the brand for several years, and comfort of valuation (Commodity kind of business valuations) and chances of future transformation in valuation to a FMCG business. It seems the thesis of FMCG valuations transformation is on the cards, by looking at many several knowledgeable investors are interested in KRBL in recent past.
Curious to see how much this plays out and how much it rewards investors now. Reinvested in KRBL in March 2018, increasing allocations based on opportunity.

(kauban) #247


Its interesting that despite what the report claims on quality, India Gate over many years has garnered majority market share, with no evidence yet that this is decreasing. Most people on this thread also seem to agree that when it comes to quality of basmati, there is no one close to India Gate. Maybe its the ageing of rice, maybe its the quality of the seeds used or the procurement strength that they claim they have. At the very least, we can assume that they have a product which is not clearly inferior to other competing products, but at the same time have built the strong branding/imagery/business strength (moat), which helps them maintain/inc share.

So while, what you say is theoretically true, it is playing out differently for KRBL on the ground.

(Krishnaraj) #248

I should point out (based on my experience working on brands in P&G, including conducting research, and later doing analytics) that blind tests are Blind Product or Packaging or Taste Tests, carried out to know more about product / packaging / taste related benefits that the consumer prefers vs your competing brand / s. In blind product test referred to, branding and packaging are removed and just usage tested. For more your may see this definition by Ipsos, a leading researcher.

Typically BPTs (blind product tests - most common) are used to compare product usage experience of your product with competitors’, to find out what attributes your product scores over competition and where it falls below, in the eyes of the consumer. Practically there will be some attributes where competition will score better; and some where you will. And, typically, in what is called the Overall Rating, both will broadly be similar. By and large true of most FMCG companies / categories. In some categories product attributes make a big difference in choice, like sanitary pads, and in some, little, like aerated drinks where taste or flavor is a personal like. These tests are carried out with the primary objective of knowing what product attributes consumers prefer that goes into deciding their overall rating of the product.This helps sharpen product focus (no need to spend money on attributes which consumer does not want), distinguish vs competition, and decide on product strategy (typically price vs value).

So in light of this, I fail to understand why a blind product test would be done among “most loyal customers” just to see whether they can identify the brand. Most cannot. In fact there is a case study of Pepsi vs Coke where in identified tests people preferred Coke and in blind, they preferred Pepsi. And then when New Coke was launched with “improved taste” it became a disaster. So much so that Coke brought back Old Coke ( New Coke replaced with Old, now called Classic! ). Of course this is a special case. But I can bet with good odds that this is true to a good degree in many FMCG brands. That is, your most loyal customers cannot differentiate your brands vs others in BPTs.

In my opinion, the observations are consistent (that even loyal customers cannot distinguish), but the conclusion is opposite. Even if people realize there is no difference between their brand (identified after BPT) and the other, or in fact is inferior, they will still buy their brand. Also note the other competing product found better is also a brand which also spends ( "extra money they are paying is for imagery and general product narrative "). So the consumer does not think (quite logically) that I will buy A over B because I am paying for imagery. Both A and B spend on imagery. And C who say just gives you exactly the same in a transparent unbranded plastic packet (say loose noodles instead of Maggi packaing) is avoided completely, even though it saves money on imagery / narrative.


I would restate this as “if two products are not vastly different from one another, the one that wins is the one that builds a stronger brand”. A stronger brand is the best deterrent from switching. Once you build a strong brand, all things remaining same (same distribution, direct costs, packing, consistency etc but slightly inferior product) , you get pricing power.


(GSrikan) #249

Hi Krishnaraj, thanks for very informative analysis. I am curious to know where the “dollar shave club vs Gillette” fits in your analysis. Investors like Pat Dorsey now believe, the brand strength is no more a moat. People look at the reviews and number of stars in amazon to decide which product to buy. So if a new competitor with same quality of product with lower price comes up, chances for good market share gain are easier than ever. If KRBL’s product is superior, then only it will be able to gain premium. From all the testimonies here it seems KRBL has superior product. It would be wise to check the amazon reviews and stars to confirm our theory.

Disc: invested

(atulgupta80) #251

I would like to share an interesting incident. I never ate IGC. However, so far best rice for me which i ever had was Galaxy. I was simply crazy about its long grain and aroma. Just now I realized that Galaxy is also same breed i.e. 1121. Now, where is the edge of KRBL if both KRBL and Galaxy are selling 1121? I understand it’s in the distribution network. It’s simply not possible to buy Galaxy 1121in Gurgaon. Whereas IGC is easily available. Coming to margin. I bought IGC in T-3 town and I paid 80-100/Kg. Whereas online price is 145/KG.Galaxy on Snapdeal. And again you can see galaxy is not even available online.

All this leave me with one question. Will KRBL be able to protect its moat which is primarily based on sourcing capability? What if there is some other serious player who matches their sourcing methodology and edge. Though I know it’s not easy. I am really struggling to find the answer this the question.

(1.5cr) #252

If any of that happens one can reconsider their thesis and exit the stock. It pays to be reactive in investing rather than proactive. And this is difficult because the human brain is wired to constantly be proactive and look for potential threats. This is true from the cavemen days.

(SD007) #253

KRBL launches two new products.

(Krishnaraj) #254

Thanks @GSrikan

Let me confess I am far from being a brand expert. I happened to have some astounding experience with respect to brands up close while working with P&G.

With that caveat,

I would prefer Dollar shave to Gillette anytime. Gillette is expensive for me. But is that a reflection of a larger undercurrent that brands are no longer a moat? No.

These questions keep coming up from time to time, every generation. For instance about 20 years ago a book called No Logo made a big splash in the brand world and outside.

My simplistic model of how a brand works is best explained with Daniel Kahneman’s System 1 and System 2 (please refer Thinking, Fast and Slow). We always want to minimize System 2 and maximize System 1 usage. Branding does that, once you, as a consumer, do your System 2 work and decide on a brand, then System 1 takes over. Now if you own the brand, you want it that way for the consumer. The consumer will also not want it interrupted because System 1 will then call System 2 and that is effortful. Especially if you are a woman buying 100 - 150 brands monthly each of them small sums.

So System 1 works fine even with minor pricking - ‘it’s OK if Dove is a little costlier now than last year, I don’t know what else is as good’. But if it gets worse and worse like Gillette does for me, I get out of System 1 and get into System 2. It can also happen if there is a compelling proposition that makes System 1 a little alert; ‘people are talking about it; there are so many ads I should try; it’s so cheap that it is worth a try, etc’

Sometimes like in the case of Gillette in my view, institutional imperative takes over and here it is a tendency of the firm to exploit the customer’s trust and lack of choice for improving profits. I know my former employer will not like my saying this, but I find it exorbitant to pay about Rs 700/- for a cartridge of 4 (with the pack saying it was Rs 825, I am giving you a big discount). So there is a case for Dollar Shave Club and others. However this example cannot be extended to say brands have no moat. Because if your brand has System 1 thinking wider / better than your competitor then you have a moat. Which is why knowing ‘unaided recall’ of brands is one of the most important thing to know in market research.

I don’t know if star rating is a big moat influencer, it must be to some extent but not sure.

Product superiority has different definitions for different people. So difficult to define for any category what is superiority. For some it could be taste, for some aroma, and for some, something I don’t know. And you cannot put everything without taking price through the roof (a general rule of thumb). So choices will be made. And brand should get that value proposition into System 1 thinking of the consumer, and prevent it from falling into System 2.


(phreak) #255

Our lazy System 2 leaves the purchase decisions involving small amounts to System 1 which goes by availability heuritic (ad we may have watched or a review we may have read), inconsistency avoidance (if I bought brand A last time, why should I buy brand B now? Does it mean I made a bad choice last time?) and so on and makes it easy for us. This is the very foundation of brands as you rightly pointed out.

However as @GSrikan pointed out, I see that a lot of modern products are able to build a brand quickly and most times spend less as they can do targeted marketing. Bigger brands survived mostly because they were the only ones that could afford airspace in the prime time. That was their biggest moat. I see social influence plays a bigger part in purchase decisions and a lot of online purchases rely solely on sorting by average customer review (I do it all the time too) and picking one from the top 1 or 2 after reading a few reviews (Very much a System 1 task). This somewhat evens the playing field for quality products that aren’t yet well established to take on big brands through quality and network effect. I think this effect could get bigger and bigger as more of our purchases move online. Branding as a moat might not be as strong now as it used to be in the age of tv.

(Krishnaraj) #256

OK, even for FMCG categories? It makes an impact on me when purchasing items where I am not sure of the brand, like a car wash, USB cable, charger. When I am aware of the brand, I ignore (HP DeskJet, Belkin power strip). While buying books where the subject and author are relatively unknown, ratings however have the biggest influence on me. My wife buys FMCG stuff online, but I haven’t seen her change brands or buy private label from earlier.

This presumes that higher rating is equal to better quality, which may not be true.

My own view is that to build a global brand like Coke that also lasts as long, takes time, and I am not sure new channels change it much. Maybe it does for some categories where the product is such a commodity that it doesn’t matter (like daily bread is, for me). What gets built quickly can also be displaced quickly by someone else.

(phreak) #258

Perhaps not for FMCG brands yet but I do see instagram brands do well for themselves in the FMCG space. But what a small upcoming brand can do, an established brand can do even better - See this for eg. What am saying that its not going to be as easy to retain mindspace as a brand because the 5/5 stars has perhaps a growing mindshare as well and might negate the power of your brand. More than the quality, its the social proof that more people are using the product (numbers of reviews/ratings) and are also happy with it (4.5 or 5 stars along with subjective opinions in the reviews) that could tilt a purchase decision.

(shreys) #259

I think brands survive because people choose the conventional options to avoid regret. They fear that the new/cheaper product may be inferior. It’s a classic case of representativeness heuristic.
Just because the conventional product is expensive it must be better.
It’s our brain that’s wired to associate price with value. We believe a high price necessarily translates to top quality.
In my limited understanding, people stick to the old brands to avoid regret.
Humans have more intense reactions to consequences arising out of action rather than inaction. Hence, if they choose a new product and it’s bad, the regret will also be more.
To sum it up, desire for regret and blame avoidance plays an instrumental role in a brand’s success.
Just my thoughts, please correct me if I’m wrong.

(Parag) #261

Here is more info about these products

KRBL is planning to launch a more branded product health segment (Hopefully rice related). Next year KRBL is planning to launch rice oil as per the video.

(rskothari) #262

Thank you for the model and calculations. Is not 5% terminal growth rate high and is favorably effecting your valuation?

(GSrikan) #265

Some useful insights on basmati rice.

(kanvgarg123) #266

Hey guys, I was looking at the corporate presentation of KRBL and the research report given by Axis Direct. The export realisations mentioned in KRBL presentation for 2017 is 81 rupees, whereas in Axis Direct report, it is mentioned that the realisations have fallen to 74 rupees. How can that be true since the prices of Basmati is higher than last year? Numbers of either the report or the company are incorrect.

(shreys) #267

I don’t mean to pollute the KRBL board.
However, I’ve a question and I haven’t been able to get an answer on the Internet.
KRBL claims to be the world’s largest miller. But, an American company called Riceland also claims to be the largest miller.
Please guide.
Disclosure: No holding yet. Would like to participate.

(1.5cr) #268

Your investment decision should not be on who is the largest rice miller. Krbl is a brand and a big one in the rice industry. Your bet is on krbl and their quality of product. To directly answer your question I have no idea :confused:

(Indie) #269

Does anyone know about the status of the GST issue over the India Gate brand? Is the brand still paying 0% GST or 5% like other rice brands?

(shreys) #270

Certainly. The investment decisions should be based on the company’s performance.
However, when conflicting claims are made by two leading companies, I believe, we should place emphasis on finding the truth.
And, seldom do two people have the same views. Hence, we’ll have to agree to disagree. Nonetheless, thanks for sharing your views. It’s much appreciated.